Market Still Lacking Some Conviction On LyondellBasell Industries N.V. (NYSE:LYB)

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may consider LyondellBasell Industries N.V. (NYSE:LYB) as an attractive investment with its 15x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times haven't been advantageous for LyondellBasell Industries as its earnings have been falling quicker than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

See our latest analysis for LyondellBasell Industries

If you'd like to see what analysts are forecasting going forward, you should check out our free report on LyondellBasell Industries.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, LyondellBasell Industries would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 30% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 7.7% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 16% per annum as estimated by the analysts watching the company. With the market only predicted to deliver 10% per annum, the company is positioned for a stronger earnings result.

With this information, we find it odd that LyondellBasell Industries is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From LyondellBasell Industries' P/E?

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that LyondellBasell Industries currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for LyondellBasell Industries that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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